AEMT - Association of Electrical and Mechanical Trades

29 April 2022
Three Ways Russia’s Assault on Ukraine Could Affect Motor and Drive Supply
Blake Griffin, Senior Analyst at technology insights specialists, Interact Analysis, looks at the potential impact the conflict in Ukraine could have on the production of low voltage motors and drives.

The war that Russia has waged on Ukraine has rocked global commodity markets. While oil & gas supply disruption and the resulting increase in price continue to dominate headlines, there are a number of other key materials exported by Russia and Ukraine which have been equally disrupted. The disruption of many of these materials will have both direct and indirect impacts on costs associated with producing a motor or drive.

After the extremely turbulent price levels experienced around the world in 2021, further supply disruption off the back of conflict was the last thing the global economy needed. Unpacking the impact this will have on the most crucial areas of the motor and drive supply chain can help suppliers prepare their businesses for what is to come and manage the expectations of their customers as the situation continues to unfold.

ALUMINIUM AND COPPER

The impact on the supply of key materials is two-fold. First, the economic sanctions placed on Russia will impact its ability to sell various products to its historically largest customers. Second, the physical devastation experienced in Ukraine will impact its ability to produce and ship its key exports. As it pertains to the production of motors and drives, the most direct impact stems from the disruption of aluminium and copper supply chains.

According to CNBC, Russia is responsible for approximately 6% of the global aluminium supply. After significant COVID-19 related supply disruptions, which resulted in a steady rise in price over 2021, it appeared that supply and demand were beginning to normalise in the last months of the year. In late 2021, the world bank had forecast a price increase for aluminium of ~5% during 2022. Now that a war has broken out, Interact Analysis expects that price forecast to be on the conservative side. As shown in Figure 1, the impact is already being felt, with aluminium prices climbing to record highs in February this year.

We expect this price to climb even further as transportation costs continue to rise amidst the disruption of the oil supply. The story for copper is not much different. While Russia is not as significant a player in the raw copper market as it is in the aluminium trade, it still produces nearly 5% of the world's supply. While the price has not yet reached record highs, it likely will next month, as indicated in Figure 2.

Perhaps more relevant is Russia's role in the copper wire market. Nearly 7% of the world's supply of copper wire, as used in induction motors, comes from Russia. This will have an immediate and significant impact on the cost and availability of copper wire used in induction motors.

If you were to look at the bill of materials for an induction motor (including wages), copper aluminium make up approximately 16% of the cost. The supply disruption these two commodities have seen due to war will be felt throughout 2022 in the form of a higher bill of materials. The motor market had already experienced significant price increases during 2021 as a result of increasing raw material costs. It would appear that price increases are likely to continue into 2022.

NEON

When one thinks of commodities impacting the drives market, neon is not the first thing that comes to mind. However, the noble gas will likely play a significant role in the production of drives during 2022, albeit indirectly. The semiconductor shortage has been a major concern for motor drive suppliers. Throughout 2021, the shortage of this key motor drive component caused delays in the production process resulting in extended lead times across the motor drive market. While not directly used in the manufacturing of motor drives, neon gas is used heavily in the production of semiconductor chips. The gas is used in the etching of silicon using high-powered lasers during the lithography step of the semiconductor production process.

According to an article by Reuters, two companies based in Ukraine account for about half of the world's neon supply. Both companies, Ingas and Cryoin, have shuttered operations amidst the Russian invasion. Resultingly, semiconductor suppliers, which are already facing a demand/ supply imbalance, are now likely going to face additional production challenges stemming from a significant neon shortage.

Semiconductor suppliers (before the war) had pointed to Q4 2022 into Q1 of 2023 as the timeline for when the shortage of semiconductors would begin to resolve. Fortunately, many of these same suppliers have since reported stocking up neon supply ahead of the war. However, if the conflict does not resolve in a timely manner, these stockpiles could run out. Should this occur, the semiconductor supply could once again fall into disarray and drive suppliers would face sourcing problems similar to the ones at the start of the semiconductor shortage in early 2021.

 FINAL THOUGHTS

As this war unfolds, we will continue to review its impact on the markets we cover. Aluminium, copper, and neon are just three areas where this war will impact the production of motors and drives. There are undoubtedly impacts we have not touched on here, including increased freight costs on the back of higher diesel prices, steel supply disruption, and the impact on end markets such as mining and oil & gas, which are extremely large sectors within Russia and Ukraine. The impacts of this war are farreaching, and we have only just begun to bear the consequences of Putin's ill-intended actions.

www.interactanalysis.com

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